With the Dow Jones Industrial Average hitting the 15000 milestone and economic signals flashing continued growth, the case for bull market optimists looks stronger. But there are reasons to be cautious about a retrenchment of the Dow.
Get into stocks – or get out?
That's the question many investors are asking themselves after the Dow Jones Industrial Average closed above the 15000 mark for the first time Tuesday. The Dow reached 15056.20, ending the session 87 points higher. The S&P 500 index, which reached the 1600 milestone last week, also rose 8.46 points to close at 1625.96, a new record. The Nasdaq was up slightly to end the session at 3396.63.
Whether to move into stocks now is anybody's guess. It comes down to where you're focused. If you're looking to the near future, the prognosis isn't rosy. Economists expect the bite of federal budget cuts under the so-called sequester to take hold this summer. Publicly traded companies, while reporting generally strong earnings this spring, have in many cases offered pessimistic guidance for earnings for the rest of the year.
Another sobering fact: The last time the Dow hit a record milestone was October 2007, when it closed above 14000 for the first time. The average flirted with that level for the next two weeks, before heading down decisively. Eighteen months later, it was trading at less than half that value, under the twin burdensof recession and the financial crisis.
But for investors focused on the economic signals of the present – as opposed to speculations about the future – the case for buying stocks looks more compelling. The economic recovery continues to roll on, slowly but with a certain resiliency. The most recent positive signals:
Job market improves, again: US employers added 165,000 jobs in April, and the unemployment rate edged down slightly, from 7.6 percent to 7.5 percent, according to the monthly jobs report released by the Bureau of Labor Statistics. The report was better than economists were expecting, with the consensus prediction being that between 140,000 and 150,000 jobs would be added. The 7.5 percent unemployment rate is a four-ear low, and analysts have pointed out that the gains over the past three months indicate that federal budget cuts don’t mean that the economy is headed towards recession.
“The jobs numbers certainly suggest that things are not falling off the cliff,” Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla, told Monitor staff writer Ron Scherer. “It looks like the spring slump was less severe than prior years.”
Auto sales pick up: Auto sales, which include sales of cars and light trucks, improved 8.5 percent over a year ago to 1.825 million in April. Detroit automakers Chrysler, Ford, and General Motors were buoyed by strong sales of pickup trucks: Chrysler’s Ram Pickup series sales increased by 49 percent since last year, Ford’s F-Series trucks jumped 24 percent, and General Motors’ sales of Chevy Silverado and GMC Sierra climbed a combined 23 percent. Industry experts credit the rise to increased demand from contractors and others in the construction industry, as pickup sales and construction activity have historically been closely tied. Overall, Chrysler’s sales rose 11 percent in April, Ford 18 percent, and GM 11 percent.
The big winner among Japanese automakers was Nissan, which saw its US sales spike 23 percent in April. Toyota’s sales dropped 1.1 percent, Honda rose 7.4 percent. Korean automaker Hyundai rose 1.7 percent.
Housing recovery keeps recovering: Case Shiller’s index of home prices in 20 cities rose in February, a closely watched indicator that the housing market is still recovering apace. The index rose 9.3 percent for the year ending in February 2013, its biggest annual increase since February 2006. Sixteen of the 20 cities covered by the index saw price gains accelerate. Despite the good news, analysts warned that gains will continue to be incremental until a backlog of unsold homes in several cities is cleared out.
Personal income and spending inch up: Personal income and consumer spending both inched up 0.2 percent in March, according to the Bureau of Economic Analysis (BEA). Personal income increased by $30.9 billion, and spending increased $21 billion. Much of the increase was driven by utilities, as consumers paid more to heat their homes during an unseasonably cold March.